The European Commission has kick-started debates across Europe on the establishment of a capital markets union by 2019 after launching a three-month consultation period with the publication of a green paper. The initiative would lead to the creation of a single European market for capital.
The capital markets union aims to improve access to finance for all businesses and infrastructure projects across Europe. It is particularly aimed at helping small and medium enterprises raising finance as easily as large companies, beyond traditional bank loans.
“The direction we need to take is clear: to build a single market for capital from the bottom up, identifying barriers and knocking them down one by one. Capital markets union is about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe’s businesses, and particularly SMEs,” declared EU commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union.
“The free flow of capital was one of the fundamental principles on which the EU was built. More than 50 years on from the Treaty of Rome, let us seize that opportunity to turn that vision into reality,” he added.
The European Fund and Asset Management Association (Efama) says that “at a time of important financing and saving challenges, it is clear that Europe needs to encourage the financing of its real economy via the capital markets.” “A more capital market based economy is one of the key solutions that will enable Europe to get back on the road towards growth recovery, and European asset managers have a crucial role to play in this changing landscape,” Efama underlines.
Peter De Proft, director general of Efama, comments: “The European asset management industry contributes to the financing of the economy and long-term saving by strategically investing the savings of households and institutional investors in concrete projects of businesses and governments. EU policymakers are right in encouraging this contribution because this will diversify the sources of funding of the economy.”
Efama believes that an EU-single market for personal pensions will also play an important role in broadening capital markets in Europe.
However, the association warns the financial tax transaction (FTT), discussed by European partners, could be a “possible hurdle” for the capital markets union. It has “the potential to cause distorsions thus endangering the EU single market and jeopardising long-term savings, growth and investment.”
Michael McKee, partner at DLA Piper, says : “Top-down initiatives like this often give with one hand and take away with the other. Should the EU impose a heavy set of conditions in return for access to non-bank finance, the capital market union may harbour similar risks. The European Commission’s existing SME financing initiative, in which more lending is contingent on improvements to corporate governance more suitable for larger businesses, is a good example of how an apparently beneficial policy can impose extra burdens.”
Joanne Segars, chief executive at the National association of pension funds (NAPF), comments: “The NAPF welcomes the Green Paper’s emphasis on strengthening European capital markets and the Commission’s commitment to creating an environment conducive to long-term investment. But it is important to remember that any reforms to the functioning of European capital markets should be seen through the lens of the providers of capital, in particular pension funds. This will help policy-makers to avoid unintended consequences where intermediaries benefit at the expense of funds and ultimately future pensioners.”
Magnus Billing, senior vice president at Nasdaq, says : “We’re pleased to see that the green paper on the Capital Markets Union highlights the need for an improved ecosystem for SMEs, in order to further enhance European growth. It is our understanding that the paper focuses on removing any legal or other obstacles to an integrated capital markets union. There is also a need for adequate incentives to foster investments, but also to simplify the life of listed companies.”